I have decided to begin John and Jane's Retirement Account articles with the basic summary of how much income each retiree has generated in their Traditional IRA and Roth IRA for each respective month. Additionally, I have decided that I want to begin tracking the cash balance of each account more closely so that readers can see how each retirees' liquid cash fluctuates on a regular basis.
Traditional IRA - Dividend Income
- July 2019 - $1,075.71 of dividend income.
- July 2020 - $1,027.63 of dividend income.
Roth IRA - Dividend Income
- July 2019 - $837.28 of dividend income.
- July 2020 - $540.46 of dividend income.
In total, John's income generated from his Traditional and Roth IRAs for July 2019 totaled $1,912.99 of dividend income compared with July 2020 total dividend income of $1,568.09.
There were quite a few changes that took place in John's Traditional IRA while no trees were made in John's Roth IRA. A detailed list of these transactions can be found in the section titled Retirement Account Positions. Some of the more notable changes in John's Traditional IRA included:
- Exited the position in Owens & Minor (OMI).
- Exited the position in Bank of America Preferred Series L (BML.PL).
- Exited the position in Southern California Edison Preferred Series D (SCE.PD).
- Started a new position in iShares Preferred Income Securities ETF (PFF).
- Started a new position in VanEck Vectors Preferred Securities Ex-Financials ETF (PFXF).
- Started a new position in Aflac (AFL).
Traditional IRA - Cash Balances
- June 2019 - cash balance of $10,008.37.
- July 2020 - cash balance of $8,625.80.
Roth IRA - Cash Balances
- July 2019 - cash balance of $5,809.62.
- July 2020 - cash balance of $1,605.59.
For those who are interested in John and Jane's full background please click the following link here for the last time I publish their full story. Here are the key details about John and Jane that readers should understand.
- This is a real portfolio with actual shares being traded.
- I am not a financial advisor and merely provide guidance based on a relationship that goes back several years.
- John retired in January 2018 and is only collecting Social Security income at this point in time.
- Jane is working part-time and will continue to do so for the remainder of 2020. Whether or not she continues to work will depend on whether or not her employer requests that she stays on in 2021.
- John and Jane have no debt and no monthly payments other than water, power, property taxes, etc.
I started helping John and Jane with this because I was infuriated by the fees and gimmicky trades made by their previous financial advisor.
I do not charge John and Jane for anything that I do and all I have asked of them is that they allow me to write about their portfolio anonymously in order to help spread knowledge and to make me a better investor in the process.
Generating a stable and growing dividend income is the primary focus of this portfolio and capital appreciation is the least important characteristic.Dividend And Distribution Decreases
The following companies made dividends cuts, suspensions, or eliminations in John's Retirement Account for July 2020.
- Brixmor Properties (BRX)
- Kite Realty (KRG)
- Occidental Petroleum (OXY)
- Park Hotels & Resorts (PK)
- VEREIT (VER)
- Ventas (VTR)
Brixmor Properties - BRX had a rather large number of tenants impacted by COVID-related shutdowns (as much as 40% of its business tenants by revenue were closed during mid-April). At the time of the earnings call the number of tenants open reached 94%. BRX has successfully collected or agreed to deferrals/abatements on 86% of Q2-2020 rents. Jim Taylor also mentioned on the earnings call that the Q3-2020 dividend was suspended in order "to ensure that next year's reinvestment pipeline is fully funded on a leverage-neutral basis. It allows us to capitalize on favorable tax deductions allowable this year. And it puts us in the best position to reinstate our dividend in the fourth quarter as fully as possible."
Kite Realty Group - KRG has been transitioning to higher quality properties over the last few years and the process has been going quite well until COVID came into the picture. KRG is focused on "community-oriented shopping centers" as noted in their earnings presentation which will help insulate the company from experiencing a severe impact related to COVID shutdowns. Overall, KRG was able to collect 80% of Q2 billings and has affirmed the deferral of 9% of billings. July collections improved to a total 87% of billings. Normally I would include a FastGraphs image but I believe that the following from the company's earnings report in August paints a solid picture of why KRG will improve post-COVID.
Source: KRG Q2-2020 Investor Update
The dividend was decreased from $.3175/share per quarter to $.052/share per quarter. This represents a decrease of 84% and a new full-year payout of $.208/share compared with the previous $1.27/share. This results in a current yield of 1.87% based on a share price of $11.14.
Occidental Petroleum - This remains the largest speculative play in John's portfolio and things seem to be improving as oil prices stabilize. At this point, I feel safe saying that I am neither bullish nor bearish because the worst possible downside is pretty well priced in while there is potential for the best possible upside (but only with a confluence of events like divesting non-core assets, paying down debt, and steady/reasonable oil prices). The dividend cut was necessary and the financial picture is looking more stable now that the company is generating massive cash-flow which is being allocated towards paying down debt. Don't expect share price to recover for quite some time as OXY's management has really damaged investor trust and destroyed shareholder value for those who bought their positions over the last several years. Investors looking to take on some additional risk/reward scenario should give the stock another look as the share price continues to stumble even though oil prices are stabilizing. We are likely to pick up some additional shares here as well.
Data by YCharts
The dividend was decreased from $.79/share per quarter to $.01/share per quarter. This represents a decrease of 98.7% and a new full-year payout of $.04/share compared with the previous $3.16/share. This results in a current yield of .003% based on a share price of $13.21.
Park Hotels & Resorts - PK has taken quite the beating during the pandemic and it has a long road to recovery because they do not own properties focused on travelers looking for cheap rates. I expect that the dividend will be suspended for at least a few quarters and the dividend when it does return is highly unlikely to be at the same levels as it has been in the past. PK remains one of the more speculative stocks in John's portfolio going forward.
Data by YCharts
PK has temporarily suspended its dividend of $.45/share per quarter effective for Q1-2020 (July).
VEREIT - This is another REIT that has been improving its operations for the last several years after the scandal that took place when it was known as American Realty Capital Properties. VER was able to collect 93% of rent. They also redeemed almost 25% of outstanding Preferred Series F (VER.PF). VER has improved liquidity and has done an excellent job of improving its debt profile over the last few years.
The dividend was decreased from $.1375/share per quarter to $.077/share per quarter. This represents a decrease of 44% and a new full-year payout of $.308/share compared with the previous $.55/share. This results in a current yield of 4.45% based on a share price of $6.92.
Ventas - VTR has struggled to maintain strong occupancy in its Senior Housing Operating Portfolio (SHOP) with Q1-2020 occupancy rates of 86.9% dropping by a whopping 470 basis points to 82.2%. To add insult to injury, the operating costs were up 4% during this same time frame which is not the kind of trend that no investor wants to see. Regardless of how you feel about the dividend cut, this was a move that was needed as a long-term solution and I believe it was necessary regardless of whether or not COVID took place.
The dividend was decreased from $.7925/share per quarter to $.45/share per quarter. This represents a decrease of 43.2% and a new full-year payout of $1.80/share compared with the previous $3.17/share. This results in a current yield of 4.26% based on a share price of $42.29.Dividend And Distribution Increases
The following stocks paid increased dividends/distributions or a special dividend during the month of July in John's Retirement Accounts.
We have covered the dividend increase by Realty Income and WP Carey in the Taxable Account article. We will include a summary of the dividend increase but exclude the summary of events and graphs for these two stocks.
Realty Income - The dividend was increased from $.233/share per month to $.2335/share per month. This represents an increase of .2% and a new full-year payout of $2.80/share compared with the previous $2.79/share. This results in a current yield of 4.48% based on a share price of $62.44.
Bank OZK - Bank OZK has seen its share price stuck in the $20-$30 range for quite some time and it was originally due to large construction loan losses (this was from the RESG portfolio). Ironically, the RESG portfolio has actually performed well during COVID with only 4 loans accounting for 1.5% of the total loan portfolio remaining in deferral. OZK has a net charge-off ratio that has been 1/3 of the industry average every year since going public in 1997. OZK continues its streak of dividend increases while many banks were contemplating whether or not they can maintain current dividend levels.
The dividend was increased from $.27/share per quarter to $.2725/share per quarter. This represents an increase of .9% and a new full-year payout of $1.09/share compared with the previous $1.08/share. This results in a current yield of 4.60% based on a share price of $23.69.
W. P. Carey - The dividend was increased from $1.04/share per quarter to $1.042/share per quarter. This represents an increase of .2% and a new full-year payout of $4.168/share compared with the previous $4.16/share. This results in a current yield of 5.82% based on a share price of $71.59.Retirement Account Positions
There are currently 25 different positions in John's Roth IRA and 28 different positions in John's Traditional IRA. While this may seem like a lot, it is important to remember that some of these stocks cross over in both accounts and are also held in the Taxable portfolio.
Traditional IRA - The following stocks were added to the Traditional IRA during the month of July.
- iShares Preferred Income ETF (PFF) - 100 Shares @ $34.49/share.
- Valero Energy (VLO) - 15 Shares @ $57.47/share.
- AT&T (T) - 25 Shares @ $30.51/share.
- Duke Energy (DUK) - 10 Shares @ $82.16/share.
- AT&T - 35 Shares @ $29.43/share.
- Aflac (AFL) - 50 Shares @ $36.24/share.
- VanEck Vestors Preferred Securities Ex Financials (PFXF) - 100 Shares @ $19.04/share.
There were three positions eliminated from the Traditional IRA during the month of July and one position where the size of the position was reduced because of record-high share prices.
- Southern California Edison Preferred Series D (SCE.PD) - 123 Shares @ $23.79/share.
- SCE.PD - 52 Shares @ $23.95/share.
- SCE.PD - 25 Shares @ $24.04/share.
- Bank of America Preferred Series L (BML.PL) - 353.2684 Shares @ $23.42/share.
- Owens & Minor (OMI) - 100 Shares @ $14.78/share.
- CyrusOne (CONE) - 25 Shares @ $82.30/share.
Roth IRA - There were no stocks added to or sold from the Roth IRA during the month of July.
There was a lot of activity that took place in John's Traditional IRA and the main reason for these transactions was related to the near breakeven value of SCE.PD and the significant recovery of value in OMI over the last few months.
Data by YCharts
While we could have held on for longer and actually sold shares of OMI at a gain, we were still happy with the significant recovery in value while also deploying these funds in stocks/funds that would increase the yield of the Traditional IRA.
CONE was sold at near 52-week-highs and we have really enjoyed using these moments to trade in and out of the stock. We will continue to maintain the current number of shares with a low cost-basis as we are bullish on the long-term prospects of CONE.
Ultimately, these sales were used to fund the purchase of diversified preferred ETFs that add monthly income to the portfolio. Both PFF and PFXF offer dividend yields that are well above what was being offered by SCE.PD and BML.PL. Additionally, each of these ETF funds traded at a discount to their normal fair-value which made the entry point that much more attractive.July Income Tracker - 2019 Vs. 2020
Income for the month of July was down slightly for John's Traditional IRA and down significantly in John's Roth IRA year over year. The Traditional IRA was able to handle the challenges of dividend reductions far better than the Roth IRA and this is because the Roth IRA had a large concentration of REITs that paid a reduced dividend or had suspended their dividend altogether.
SNLH = Stocks No Longer Held - Dividends in this row represent the dividends collected on stocks that are no longer held in that portfolio. We still count the dividend income that comes from stocks no longer held in the portfolio even though it is non-recurring. All images below come from Consistent Dividend Investor, LLC.
Here is a graphical illustration of the dividends received on a monthly basis for the Traditional and Roth IRAs.
Based on the current knowledge I have regarding dividend payments and share count, the following tables are a basic prediction of the income we expect the Traditional IRA and Roth IRA to generate in FY-2020 compared with the actual results from 2019.
Below is an expanded table that shows the full dividend history since inception for both the Traditional IRA and Roth IRA.
I have included line graphs that better represent the trends associated with Jane's monthly dividend income generated by her retirement accounts. As year three begins, we should continue to see a more stable pattern that comes from the deposit of regular dividend income. The images below represent the Traditional IRA and Roth IRA, respectively. There may be additional volatility in monthly dividends received due to dividend suspensions/cuts as a result of COVID-19.
Lastly, on the topic of transparency, I like to show readers the actual unrealized gain/loss associated with each position in the portfolio because it is important to consider that in order to become a proper dividend investor, it is necessary to learn how to live with volatility. The market value and cost basis below is accurate as of the market close on August 18th.
Here is the Unrealized Gain/Loss associated with John's Traditional and Roth IRAs.
The following graph that was suggested by one of my readers who thought that this particular graph would demonstrate some of the interesting trends that we see each month while comparing them on a year-over-year basis. The main issue with the graph as it currently stands is that this is only the third year of collecting this data which makes the graph more choppy than it should be. I believe that the graph will continue to become more valuable as we enter into years four and five.
John and Jane's portfolios have performed well through the COVID situation but John's Roth IRA was the first portfolio to show weakness as a number of REITs and OXY announced large dividend cuts or suspensions. Although this is disappointing (nothing looks worse than looking at graphs that break trends) and the reduced income for the month of July. With the results of July added into the mix I now expect that the Roth IRA will likely generate the same amount of income as it generated in 2019.
The recovery of the economy and avoiding shutdowns are key to whether or not dividends resume in the next few months.July Articles
I have included the links for John and Jane's Taxable Account and Jane's Retirement Account articles for the month of July below.
- The Retiree's Dividend Portfolio - Jane's July Update: Resilient Dividends
- The Retirees' Dividend Portfolio: John And Jane's July Taxable Account Update
New Article Format: Let me know what you think about the new format (what you like or dislike) by commenting, liking, following, etc. I appreciate all forms of criticism and would love to hear what I can do to make the articles more useful for you!
In John's Traditional and Roth IRAs, he is currently long the following mentioned in this article: Aflac (AFL), Apple Hospitality REIT (APLE), BB&T (BBT), BP (BP), Brixmor Property Group (BRX), Canadian Utilities (OTCPK:CDUAF), Chatham Lodging Trust (CLDT), CVS Health Corporation (CVS), Chevron (CVX), CyrusOne (CONE), Dominion Energy (D), Digital Realty Preferred Series J (DLR.PJ), Duke Energy (DUK), Eaton Vance (EV), Eaton Vance Floating-Rate Advantage Fund (EAFAX), EPR Properties (EPR), EPR Properties Preferred Series G (EPR.PG), General Dynamics (GD), Healthcare Trust of America (HTA), Iron Mountain (IRM), JPMorgan Chase (JPM), Kinder Morgan (KMI), Kite Realty Group (KRG), Las Vegas Sands (LVS), LTC Properties (LTC), Main Street Capital (MAIN), Altria (MO), Realty Income (O), Occidental Petroleum Corp. (OXY), Bank OZK (OZK), PacWest Bancorp (PACW), PepsiCo (PEP), iShares Preferred Income Securities ETF (PFF), VanEck Vectors Preferred Securities ex Financials (PFXF), Park Hotels & Resorts (PK), PIMCO Income Fund Class A (PONAX), Regions Financial (RF), RPT Realty Preferred Series D (RPT.PD), STAG Industrial (STAG), AT&T (T), Toronto-Dominion Bank (TD), T. Rowe Price (TROW), Cohen & Steers Infrastructure Fund (UTF), Valero (VLO), VEREIT (VER), Valley National Bancorp (VLY), Umpqua Holdings (UMPQ), Ventas (VTR), Walgreens (WBA), WestRock (WRK), and W. P. Carey (WPC).
Source : https://seekingalpha.com/article/4371051-retirees-dividend-portfolio-johns-july-update-roth-ira-shows-weakness